March 16, 2018

The Weekly Gist: The “It’s the Prices Stupid” Edition

by Chas Roades and Lisa Bielamowicz MD

It’s March Madness! The opening weekend of the NCAA tournament is one of the most exciting in all of sports, with Cinderella stories waiting to happen and underdogs to cheer for all weekend long. Sadly, one of our undergrad schools didn’t make the Big Dance this year…but the other scored the #1 overall seed in the tourney (and then promptly lost their star player to injury). Since our fledgling firm can’t really make a bracket pool work just yet, we’re just watching the games and hoping for some great basketball.

Meanwhile, it’s been a busy week for us, so let’s get right to it. We appreciate all the feedback on our first edition of the Weekly Gist, and we’re gratified by how many of you have subscribed. Please feel free to forward this to a colleague if you find it worthwhile, and if you’ve received this week’s edition from a friend, subscribe for yourself!


THIS WEEK IN HEALTHCARE

What happened in healthcare this week—and what we think about it.

Insurers Continue to Prowl for Provider Assets

Last week it was reported that UnitedHealth Group was interested in acquiring the former AmSurg chain of ambulatory surgery centers from Envision Healthcare. The deal, which would presumably have added another large piece to the fast-growing OptumCare division of UnitedHealth, would have come on the heels of last year’s acquisition of Surgical Care Affiliates by Optum. But it emerged this week that Optum is out of the running for the deal after Envision sued UnitedHealth on Monday in a dispute over network exclusion and provider pricing.

Optum is not alone in this strategy. Humana recently moved to organize their owned clinics and physician assets under a new brand, Conviva. We’d expect Optum/UnitedHealth and Humana to remain on the hunt for assets in the ambulatory surgery, urgent care and physician practice space. Large insurers are centering on a common strategy: invest heavily in the front end of the delivery system, create a separate consumer brand for care delivery, and attempt to control referrals and pricing for hospital and specialty care—and reap the gains on the insurance side of the business.

Why We Were All Duped by Theranos

In light of the SEC filing accusing Theranos founder Elizabeth Holmes of “massive fraud,” it’s critical to consider why our industry, which strives for evidence-based care, was so willing to anoint Holmes as revolutionary with little supporting evidence that her product worked. We all talk a lot about disruptive innovation these days—it’s become an industry obsession. Theranos’s low-cost, painless lab technology seemed poised to fuel the growth of consumer-driven retail care. But in the end, it was vaporware.

Large health systems taking on the role of VC incubators are taking on the risk of endorsing unproven technologies in hopes of big returns. We’re all susceptible to the mythology of the “tech wunderkind”, and with her black turtleneck, Holmes was widely hailed as “the next Steve Jobs.” But the Theranos debacle is a reminder that Silicon Valley’s “fake it till you make it culture” may not always be the best fit for healthcare, and providers should have a high bar for any technology that purports to “revolutionize” patient care. There’s a good reason medicine is an inherently conservative discipline.

California Moves on From Single Payer—For Now

The California Assembly declined to advance a prominent bill that would have established a single-payer healthcare system. The proposed California system was estimated to cost $400 billion annually, likely requiring massive new payroll taxes to cover the increased spend. California’s proposal hit the same wall that all single-payer flirtations in the US have—despite popular and political support, there’s zero consensus on how to pay for it. As we approach the midterm elections, we expect calls for single-payer healthcare to gain momentum. But it’s highly unlikely that Congress will ever be willing to make the budget tradeoffs necessary for single payer to be anything more than a political rallying cry.


GRAPHIC OF THE WEEK

A key insight or teaching point from our work with clients, illustrated in infographic form.

One of the largest sources of savings that Medicare ACOs have identified as they look to reduce total cost of care is the wide variability in quality and use of postacute care. While ACOs have been able to capture some of those savings, Medicare Advantage plans have been even more successful at reducing postacute spend. That’s because they can tighten referral networks and protocols for their enrollees. Look for growing enrollment in MA to have a measurable impact on the postacute landscape over the coming years.


THIS WEEK AT GIST—ON THE BLOG

What we’ve been writing about this week on the Gist Blog.

Five Ways to Tell if CVS-Aetna is Really Going to Transform Care
If CVS-Aetna makes the investments necessary to create a real care ecosystem, the merger could present a huge threat to traditional providers by shifting consumer loyalty away from doctors and health systems

Concierges and Cadillacs: To the Victors Go the Spoils
The rise of consumerism in healthcare is forcing a necessary (if uncomfortable) conversation about whether patients should receive different care based on their ability to pay


THIS WEEK AT GIST—ON THE ROAD

What we learned this week from our work in the real world.

Leavening local governance with national perspective

Lisa:
This week I was with the board of a strong regional health system that’s known as a leader in physician integration and patient access. They’re well positioned to grow in their own market. But confronted with local consolidation and new national competitors like CVS-Aetna, the system is evaluating partnership options beyond their market—and they’re concerned that their board, composed mainly of local business leaders and physicians, might not be ready to consider out-of-market strategies. They raised a question that I’m hearing from many strong, local systems: do we need directors who bring national insight and expertise, and how do we balance that with making sure our local community is well represented?

Looking for healthcare’s answer to Amazon Prime

Chas:
I spent time this week with a high-performing community hospital system that’s exploring launching a membership offering for their local consumers. The idea would be to leverage their strong local reputation and presence across the continuum of care to offer additional navigation and management services to patients who enroll as ‘members’ of the health system. Like many, they’ve watched the rise of Amazon Prime and other consumer loyalty programs with interest, and they’re wondering if something similar is possible in healthcare. This ‘membership’ approach is something we’re going to see more of across healthcare, and if providers can build a compelling set of offerings and curate a great consumer experience, there’s real upside to be had from increased engagement with consumers.


WHAT WE’RE READING

Stuff we read this week that made us think.

It’s Still the Prices, Stupid!

Building on the work of the great healthcare economist Uwe Reinhart almost two decades ago, a canon of studies have pointed to the price of care as the main reason why the US spends more on healthcare than other western countries. A new study in JAMA this week debunks several other explanations for why we pay so much. Too few primary care docs? Nope, we have a similar specialist-PCP mix to other countries. Do we use more health care services? Apart from more MRI and CT scans, our utilization rates are the same.

But compared to other countries we do pay more than double the price for hospitals, doctors and drugs. And administrative costs in the US account for a whopping 8% of spending, compared to 1% to 3% elsewhere. This is more compelling evidence that simply reducing “unnecessary utilization”—via ACOs and the like—is insufficient. We need to get our prices down, and that means reducing the underlying cost of our services.

Is it a copay if the consumer spends more than the insurer?

New research published in JAMA reveals that nearly a quarter of the time consumers visit the pharmacy counter, their drug co-payments exceed the insurer’s negotiated payment. The article also noted that pharmacists, whom consumers look to as their first line of defense against overpayment, are sometimes contractually prohibited from alerting patients when the copayment exceeds the drug’s cash price. As pharmacies and insurers jockey to become the nexus of health management, they’ll have to resolve the conflict between revenue-maximizing insurance strategies, and a more consumer-centric approach to care.


That’s it for this week. Thanks again for taking the time to read the Weekly Gist—we look forward to your feedback and suggestions on how to make our work as relevant and useful as possible. Don’t forget to check out our website, and let us know if there’s anything we can do to support your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com